ShopKo runs flat; but Pamida sales up

GREEN BAY, WI -With sales held in check at its core discount stores, and margins thinning out as costs climbed higher, heartland retailer ShopKo Stores posted a third-quarter loss of $8.4 million, compared with a year-ago profit of $9.4 million.

Sales in core ShopKo Stores were virtually flat, inching up just 0.1 percent, to $627.6 million from $626.8 million a year ago. But overall sales, lifted somewhat by stronger sales in the smaller Pamida Stores chain, eked out a modest increase of 1.0 percent, to $814.2 million from $806.0 million last year. Sales in the Pamida unit, acquired a year ago, advanced by 4.1 percent, to $186.6 million from $179.3 million.

"We are clearly disappointed," said Bill Podany, chairman, president and ceo. "We underestimated the severity of sales softness and the corresponding margin impact for October and for the quarter."

And it's not just the current weakness at retail, said Podany. "While we believe the shortfall is due largely to a difficult economic environment, we have experienced competitive pressure in both pricing and new market entries.

"We believe that our business model remains fundamentally sound, but we continue to make improvements to current marketing, merchandising and operational processes that are all focused on driving the top-line sales and maximizing our opportunity during the holiday selling season."

According to Podany, steps in the return to profitability include inventory and expense management; capital spending reductions; asset-base review and analysis; and capital structure review and analysis.

With sales running virtually flat, average gross margin was squeezed thin in the period, declining by 100 basis points, to 23.9 percent from 24.9 percent a year ago. Gross margin dollars declined by 2.9 percent, to $194.7 million from $200.5 million a year ago.

Costs climbed sharply higher as well, rising by 150 basis points, to 20.5 percent of sales from 19.0 percent the preceding year. Measured in absolute dollars, costs moved up by 9.1 percent, to $166.7 million from $152.8 million last year.

Putting another big pinch on profits, interest expense shot up by 23.8 percent, to $16.9 million from $13.6 million a year ago.

SHOPKO STORES INC.

Qtr. 10/28 (x000)

2000

1999

%CHG

Sales

$814,191

$806,032

1.0

Oper. income (EBIT)

31,331

51,262

(38.9)

Net income

(8,424)a

9,358a

-

Per share

(0.29)

0.30

-

Average gross margin

23.9%

24.9%

-

SG & A expenses

20.5%

19.0%

-

NINE MONTHS

2000

1999

%CHG

Sales

2,383,325

2,020,978

17.9

Oper. income (EBIT)

122,063

119,239

2.4

Net income

28,267b

52,740b

(46.4)

Per share (diluted)

0.97

1.87

-

Average gross margin

25.2%

25.1%

-

SG & A expenses

20.5%

19.7%

-

( ): Denotes loss

a-Third-quarter results include special pre-tax charges of $3.1 million vs. $3.4 million last year; an income-tax benefit of $4.6 million vs. a year-ago tax liability of $4.7 million; year-before results include $1.6 million in after-tax income from a discontinued operation.

b-Nine-month results include special pre-tax charges of $7.2 million vs. $4.2 million a year ago; $1.6 million in after-tax income from a discontinued operation vs. $6.3 million in after-tax income the prior year; and a $29.4 million after-tax gain on the sale of a discontinued business vs. a year-before gain of $34.8 million; prior-year results include a $3.8 million one-time loss on the retirement of debt.